EDITOR: | December 10th, 2012

Gold: China Responds To America’s “Blank Cheque.”

| December 10, 2012 | No Comments

Back on December 5th, in “Gold: The antidote for 2013,” we wrote:

“But it was the incredible own goal yesterday by the United States Senate, that really sets up 2013 to be a once in a lifetime year. The U.S. Senate approved a key defence policy bill Tuesday stipulating that Washington acknowledges Japanese control of the Senkaku Islands and that they fall under the scope of the bilateral security treaty.  Called the Diaoyu’s in China and claimed by both China and Taiwan, Japan was supposed to give the islands back to the Republic China in the settlement that brought World War Two to its formal end.”

—There is no way to Beijing, that this doesn’t look to be anything other than the USA giving a “Blank Cheque” to Japan, rather like Germany did to Austria, in July 1914, setting off World War One. China, America’s largest creditor, has to take this as an affront.

The bill has yet to pass the House, and then be signed into law by President Obama, though this is expected to be a formality. When it happens, China is likely to at the least protest and up the ante.  Next Sunday December 16th, Japan is holding a general election which Shinzo Abe’s, right wing Liberal Democratic Party is expected to easily win. Playing to the right wing, Mr Abe has promised to build on the uninhabited islands, a move certain to produce a response by China. But emboldened by Uncle Sam’s blank cheque to Japan, would China dare to use force to stop him?

The answer might be derived from China’s so far restrained response to the Senate’s action last week as portrayed in an article in the People’s Daily, English language, online edition. It’s an article intended to be read closely in Washington. In it, they suggest that the United States is just using the issue as a way of reassuring Japan and other American allies in the region that despite all America’s troubles and decline, America is still a reliable ally.

Next the article suggests it’s America interfering in Japan’s election to help get Shinzo Abe elected. Darkly. it’s in America’s interest to format trouble between Japan and China.

“Seen from the U.S. traditional strategy, the disputes between China and Japan in Asia Pacific serve interests of the United States. And the easiest way of intensifying China-Japan tensions is to incite Japanese right-wingers to stir up troubles on the surface. This U.S. move will undoubtedly increase the Japanese right-wing forces’ chance to win the election.”

The article then ends turning to the future of China-US relations, politely suggesting that the move is but a gambit seeking “more room for manoeuvre in future China-U.S. game.” My guess is that this is China’s big wish. That the US will somehow signal back that they won’t let Japan start an actual war, next year by building. Ominously though, the article ends:

“The Diaoyu Islands are China’s inherent territory and China will resolutely safeguard its maritime rights and interests. Stable development of China-U.S .relations is conductive to peace and stability of Asia Pacific while the U.S. short-sighted and biased policies are not helpful for bilateral relations and regional stable development.”

Which sounds to me like a coded way of China saying to the US that they are willing to fight Japan, if push comes to shove, and Abe tries to build on the islands, don’t be so foolish to actually get involved. Stay long physical precious metals.  Seen from faraway safe London, all three players have managed to back themselves into a corner, though it’s by far and away that China through Taiwan, holds the high ground. If China isn’t going to back down, one of the others has too. With a nationalistic government now coming to Japan, Japanese autos sales in China are about to fall off another cliff. Depending on the US signal back, America may be gifting future Chinese auto sales to Europe.

I would pretty much bet that none of this early stage crisis is yet priced in to the forward price of precious metals.

Why US meddles in Diaoyu Islands issue?
(People’s Daily Online) December 06, 2012



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